'Fit for 55' and its impact on the chemicals sector - A Cicero/amo overview

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THE CHEMICALS SECTOR AND ‘FIT FOR 55’

Why should the chemicals sector care about the ‘Fit for 55’ Package?

As an energy-intensive industry, the ‘Fit for 55’ legislative package due to be presented by the European Commission on 14 July will feature energy legislation that will likely impact different sections of the chemicals sector. The package will feature proposals for both new and reviewed legislation, implementing the EU’s increased climate ambition of a 55% emissions reduction by 2030.

Which legislative initiatives are most important to users of chemicals? Revised EU Emissions Trading System (ETS) • The Commission is likely to propose a stricter cap on emissions allowances, decreasing each year by a higher rate than proposed currently. • The Market Stability Reserve (MSR) is also expected to be reworked to tackle the price volatility of allowances, with the absorption capacity likely to also increase to tackle oversupply. • These changes see the price of allowances increase, impacting areas of the energyintensive chemicals sector which fall under the scope of the ETS.

New Carbon Border Adjustment Mechanism (CBAM) • • The CBAM is intended to complement the stricter ETS and contribute to a level playing field between EU and non-EU manufacturers, attributing a price/tax to the estimated carbon emitted during the production process of a substance or material which is imported into the EU. • Leaks of the CBAM appear to cover fertilisers, steel, cement, and the power industry. • Measures due to be phased in from 2023, with full implementation set for 2026.

Revised Renewable Energy Directive (RED II)

Revised Energy Taxation Directive (ETD)

• The revision of RED II will further increase the renewable energy targets for 2030 towards 3840% instead of the current 32%.

• The ETD will be revised for the first time since 2003 and is expected to feature greater sectoral tax differentiation between different types of fuel and their use, as well as greater product differentiation.

• Higher targets will help create new opportunities for market growth for those members of the chemicals industry engaged in renewable energy sectors. • Leaks appear to suggest that discussions in codecision may focus on definitions of “renewable fuels of non-biological origin”, “renewable fuels”, “low-carbon fuels” and “low-carbon hydrogen”, which may be permitted under the Directive.

• The differentiation based on environmental performance that the Commission is considering could determine which fuel and fuel-related products see market growth.


Revised Energy Efficiency Directive (EED)

Revised Effort Sharing Regulation (ESR)

• With the EU’s energy efficiency target under the EED set to be increased to match the ambition of the European Climate Law, the direct and indirect impact on the EU chemicals industry will be widespread.

• The ESR currently sets nationally binding annual greenhouse gas emissions targets for non-ETS sectors such as waste, transport, construction, and agriculture.

• Updates to the EED may also introduce energy audits for energy-intensive companies, new requirements for industrial heating and cooling, as well as the recovery of waste heat.

• While many of these sectors will be integrated into the ETS, early indications from the European Commission are that the ESR will continue to exist in parallel to the ETS. • In the context of ‘Fit for 55’, many of the current targets will be upgraded to meet the higher ambitions.

Next steps after the publication of the ‘Fit for 55’

The Council of the EU and the European Parliament are expected to start reviewing all the legislative proposals from the European Commission as of September 2021. Along with the Chemicals Strategy for Sustainability, the ‘Fit for 55’ package will help drive forward the Commission’s aim of achieving climate neutrality in the energy-intensive chemicals sector.

Cicero/amo has extensive experience in supporting companies navigate the energy and chemicals landscape. Please do get in touch to discuss this document in greater detail or if you would like to find out more about how we can support your organisation.

Get in touch... Helena Walsh Managing Director, EU Public Affairs helena.walsh@cicero-group.com Daan Cortenbach Senior Account Executive daan.cortenbach@cicero-group.com Tim Davidson Senior Account Executive tim.davidson@cicero-group.com

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